Bangladesh Bank ‘prepares’ to sue NY Federal Reserve Bank over funds heist

Bangladesh Bank has plans to sue the Federal Reserve Bank of New York and three other banks if they are found to be in any way responsible for the defrauding of its foreign reserves from the US account.

The central bank has hired lawyer Ajmalul Hossain QC to determine if standard practices were followed in the siphoning off of the funds from its account with the NY Fed to Sri Lankan and Filipino banks.

In one of the largest cyber heists in history, hackers directed the US Fed to transfer $81 million to accounts in the Philippines and $20 million to accounts in Sri Lanka.

SWIFT (Society for Worldwide Interbank Financial Telecommunication), a global bank messaging system, received their advices sent by using Bangladesh Bank credentials.

The $20 million sent to Sri Lanka was recovered, but the amount sent to the Philippines is yet to be retrieved.

SWIFT has already claimed that the hacking did not take place because of its system failure.

Deputy Governor SK Sur Chowdhury on Wednesday said Ajmalul Hossain QC will try to find out if the three banks carried out their ‘responsibilities properly’.

“He will also determine if any legal step is needed in this regard,” he added.

The finance ministry in a Mar 13 report on the cyber heist said the three US banks were negligent in carrying out their responsibilities.

The central bank, police’s CID and the probe team formed by Bangladesh government then started investigating to find the responsible.

But, the NY Fed had claimed their system was not breached and that they had also taken ‘proper measures’ upon Bangladesh Bank’s request.

The heist took place at the beginning of February, but it became public when the Philippine Daily Inquirer first reported the theft at the end of that month.

Later, investigations in the Philippines started to unearth new information, including that the NY Fed had received 35 fraudulent funds transfer instructions to move $1 billion from Bangladesh Bank’s account.

Responding to four of those, they transferred $81 million to several accounts in Rizal Commercial Banking Corp (RCBC) of the Philippines and $46 million of that amount was then converted to local currencies and funnelled to casinos.

With the rest of the funds somehow smuggled out, Filipino officials have given a 'very low chance' of recovering the $81 million.

The fifth instruction was for sending $20 million to an account of a ‘fake NGO’ in Sri Lanka’s Pan Asia Banking Corporation. But the withdrawal request for that money was stopped when suspicion rose after a spelling error in the NGO’s name was detected.

The then Bangladesh Bank governor Atiur Rahman had kept the government in the dark for almost a month. Amid the resultant criticism, he stepped down on Mar 15.

The same day, the bank lodged a case over the heist with Motijheel police and the CID were immediately put on it.

According to the case details, central bank officials found out about the requests for funds transfer a day after the heist.

Then an email was sent to the NY Fed on Feb 6 asking it to stop the transactions. But by then funds of $101 million had been already wire-transferred to the Philippines and Sri Lanka.

Bangladesh Bank officials said the funds were sent to those countries through banking and financial services company Wells Fargo, the Bank of New York Mellon and Citibank of New York.

They said these banks had not ‘followed protocol’ while executing the funds transfer request and the relevant authorities including the FBI, anti-money laundering and anti-corruption agencies in the US have been informed about that.

Bangladesh Bank says the NY Fed had sought approval for 30 payment instructions and further explanations on the five other requests.

But the US bank wired the money via the three other banks to the Philippines and Sri Lanka before receiving any word from Bangladesh Bank.

The central bank later contacted the banks several times over the issue, but got no response.

A Bangladesh Bank official said they were also taking counsel from a US lawyer to identify the four banks’ negligence in keeping the legal liabilities regarding wire transfers.

Recommendations from that lawyer may also lead them to initiate a suit for compensation, the official said.